If yesterday’s markets closed broadly unchanged following all the excitement from the latest “buy the rumor, sell the news” European stress test coupled with a quadruple whammy of macroeconomic misses across the globe, then today’s overnight trading session has been far more muted with no major reports, and if the highlight was Kuroda’s broken, and erroneous, record then the catalyst that pushed the Nikkei lower by 0.4% was a Bloomberg article this morning mentioning that lower oil prices could mean the BoJ is forced to “tone down or abandon its outlook for inflation.” This comes before the Bank of Japan meeting on Friday where the focus will likely be on whether Kuroda says he is fully committed to keeping current monetary policy open ended and whether or not he outlines a target for the BoJ’s asset balance by the end of 2015; some such as Morgan Stanely even believe the BOJ may announce an expansion of its QE program even if most don’t, considering the soaring import cost inflation that is ravaging the nation and is pushing Abe’s rating dangerously low.
Ironically it was the USDJPY levitation after the Japanese session, which launched just as Europe opened, moving the USDJPY from 107.80 to 108.10, that has managed to push equity futures up 0.5% on the usual: nothing.
And speaking of central bank meetings, the Fed’s own two-day October FOMC meeting begins today in the first ex-POMO day after many years of direct central bank intervention in the market, with the announcement due at the usual time tomorrow. Most commentators expect QE to end this month but for the Fed to keep the ‘considerable time’ language. Some mentioned that it would be interesting to see if the recent market volatility gets a mention. In short, nothing major is expected from the Fed although central banks still can surprise as Sweden’s Riksbanks showed today, when it sent the Krona tumbling to a four-year low against the dollar after the central bank entered the ZIRP club, cutting its main rate to 0.00%, below the 0.1%-0.25% expected.
Looking at markets, JGBs trade up 11 ticks at 146.55 underpinned by weakness in Japanese stocks, with some mild curve flattening observed, as 10s/20s fell to their flattest level since July 2013. Chinese bourses rescinded yesterday’s losses amid the H.K-Shanghai connect delay. The Hang Seng (+1.6%) and Shanghai Comp (+2.07%) were further supported by a jump in September Chinese Industrial Profits (+0.4% vs. Prev. -0.6%). Nikkei 225 traded down 0.4% weighed on by energy stocks, after yesterday where WTI crude futures briefly fell below USD 80/bbl to trade at the lowest level since June 2012. FIXED INCOME & EQUITIES Price action throughout the European session has largely been dictated by this morning’s plethora of large cap earnings reports, with a distinct lack of further macro European news to guide prices. More specifically, the DAX (+1.4%) leads the way for European equities after breaking above the 9,000 level with support provided by Deutsche Telekom (2.9%) following earnings from T-Mobile US and K+S (+2.2%) after a positive broker move at Goldman Sachs. Elsewhere in Europe gains for both the CAC (+0.4%) and FTSE 100 (+0.4%) have been capped by heavy losses for Sanofi (-7.9%) and Standard Chartered (-8.4%) respectively.
Today will see the release of the Conference Board Consumer Confidence for October, the Richmond Fed Manufacturing Survey for October, Case-Shiller Home Prices for August and more importantly Durable Goods Orders for September. It is a highly volatile series but could play a key part in influencing the advance Q3 real GDP report on Thursday. Closer to home, Italy’s economic sentiment and business confidence are perhaps the notable ones to watch. We also have 49 S&P 500 companies and 16 Stoxx600 firms reporting today. Pfizer, Facebook (after market), UBS and Lloyds Banking Group are just some of them.
Bulletin Headline Summary from Bloomberg and RanSquawk
- Large cap earnings take focus in Europe, with European equities green across the board amid a lack of other fundamental newsflow to guide prices.
- FX markets remain tentative ahead of tomorrow’s FOMC release, with the Fed expected to announce a completion of their asset purchase programme.
- Looking ahead, attention turns towards the US durable goods release as well as a host of tier 1 US earnings from the likes of Pfizer, Facebook and Gilead Sciences.
- Treasuries little changed before start of Fed’s two-day meeting, week’s supply begins with $29b 2Y notes; yield 0.42% in WI trading, lowest in five months.
- Investors eyeing recent global economic and political turmoil are expressing doubt about forecasts from Fed officials — and most Wall Street economists — that the Fed will begin to lift its benchmark rate in mid-2015
- Fed officials are seen debating merits of “considerable time” rate guidance; click here for roundup of views
- Sweden’s central bank ventured into uncharted territory as it cut its main interest rate to zero and delayed tightening plans into 2016 in a bid to jolt the largest Nordic economy out of a deflationary spiral
- The Bank of Japan will consider moderating its language on inflation in a report this week to take account of the impact of lower oil prices, according to people familiar with central bank’s discussions
- The Japanese economy isn’t strong enough to withstand another increase in the sales tax, the ruling Liberal Democratic Party’s finance panel chief said
- The gap between China’s reported exports to Hong Kong and the territory’s imports from the mainland widened in September to the most this year, suggesting fake export-invoicing is again skewing China’s trade data
- Support for U.K. Independence Party, which wants Britain to leave the EU, has risen to a record 19%; Conservatives tie Labour according to a ComRes poll
- A week before midterm elections, governors are upstaging the White House on dealing with Ebola, and Obama’s Ebola coordinator, Ron Klain, is staying out of public view
- Result is a national response to the risk of Ebola that has looked anything but coordinated
- Louisiana Senator Mary Landrieu used the absence of her top opponent in her re-election race at Monday’s debate to highlight her differences with Obama and her efforts to work across the aisle during her time in office
- Sovereign yields mostly lower. Asian stocks mixed, with Nikkei lower, Shanghai higher; European stocks, U.S. equity- index futures gain. Brent crude falls 0.2%; copper gains, gold little changed
US Economic Calendar
- 8:30am: Durable Goods Orders, Sept., est. 0.5% (prior -18.2%, revised -18.4%)
- Durables Ex-Transportation, Sept., est. 0.5% (prior 0.7%, revised 0.4%)
- Capital Goods Shipments Non-Defense Ex-Aircraft, Sept., est. 0.7% (prior 0.1%)
- Capital Goods Orders Non-Defense Ex-Aircraft, Sept., est. 0.7% (prior 0.6%, revised 0.4%)
- 9:00am: S&P/Case-Shiller 20 City m/m, Aug., est. 0.18% (prior -0.5%)
- S&P/CS 20 City y/y, Aug., est. 5.70% (prior 6.75%)
- S&P/CS 20 City NSA, Aug., est. 173.89 (prior 173.34)
- S&P/CS US HPI y/y, Aug. (prior 5.61%)
- S&P/CS US HPI NSA, Aug. (prior 167.32)
- 10:00am: Consumer Confidence Index, Oct., est. 87 (prior 86)
- 10:00am: Richmond Fed Manufacturing Index, Oct., est. 11 (prior 14)
- 1:00pm: U.S. to sell $29b 2Y notes
- FOMC starts two-day meeting Supply
ASIA
JGBs trade up 11 ticks at 146.55 underpinned by weakness in Japanese stocks, with some mild curve flattening observed, as 10s/20s fell to their flattest level since July 2013. Chinese bourses rescinded yesterday’s losses amid the H.K-Shanghai connect delay. The Hang Seng (+1.6%) and Shanghai Comp (+2.07%) were further supported by a jump in September Chinese Industrial Profits (+0.4% vs. Prev. -0.6%). Nikkei 225 traded down 0.4% weighed on by energy stocks, after yesterday where WTI crude futures briefly fell below USD 80/bbl to trade at the lowest level since June 2012. FIXED INCOME & EQUITIES Price action throughout the European session has largely been dictated by this morning’s plethora of large cap earnings reports, with a distinct lack of further macro European news to guide prices. More specifically, the DAX (+1.4%) leads the way for European equities after breaking above the 9,000 level with support provided by Deutsche Telekom (2.9%) following earnings from T-Mobile US and K+S (+2.2%) after a positive broker move at Goldman Sachs. Elsewhere in Europe gains for both the CAC (+0.4%) and FTSE 100 (+0.4%) have been capped by heavy losses for Sanofi (-7.9%) and Standard Chartered (-8.4%) respectively.
Fixed income markets remain relatively subdued, although underperformance has been seen in the long-end of the UK curve after books closed on the syndication of UK 2068 Gilt with orders exceeding GBP 13bln and price guidance set at 2.5 bps over the 2060 Gilt. French and Belgium bonds are trading well in early trade with IFR noting demand into month-end and redemption flow supporting prices; a redemption payment of EUR 21bln of a maturing 10y OAT was paid yesterday.
FX
FX markets remain relatively tentative ahead of tomorrow’s widely anticipated FOMC releases, however, SEK has seen substantial weakness after the Riksbank cut their key repo rate by 25bps to 0.00% against expectations of a 15bps cut. This subsequently saw SEK weaken to a 4-month low vs. EUR and 4-year low vs. USD. Heading into the North American crossover, USD is regaining some ground as the USD index returns to positive territory and as such pushing USD/JPY back above 108.00, with offers touted above at 108.20-25 and 108.40-50 with stops above.
COMMODITIES
WTI and Brent crude futures have been provided some reprieve in a pull-back of yesterday’s heavy losses, although Barclays have added to the recent slew of tier 1 investment banks by cutting their 2015 Brent and WTI crude forecasts. More specifically, they cut their 2015 Brent crude forecast to USD 93/bbl from USD 96/bbl and 2015 WTI crude forecast to USD 85/bbl from USD 89/bbl. Elsewhere, gold trades with modest gains albeit off its best levels, as markets look ahead to tomorrow’s seminal FOMC meeting while spot gold (+0.1%) bounced back after triggering stops below last week’s low on strong Asian demand. Furthermore, Barclays remains bullish on the near-term fundamentals for gold, keeping its Q4 average forecast at USD 1,220/oz.
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DB’s Jim Reid complete the overnight summary
It was a bit of a ‚buy the rumour, sell the fact? day for European financials after Sunday’s relatively benign stress test results. Although to be fair there hadn’t been an awful lot of buying beforehand. The Stoxx 600 bank index peaked at 8.03am (London time) having climbed +2.1% in a matter of minutes, only to close -2.3% lower with the wider Stoxx 600 -xxx%. The turn also coincided with a weak IFO number (more later) but financials traded poorly led by Italian and Greek banks. Banca Monte dei Paschi di Siena and National Bank of Greece were the main decliners having closed -21.5% and -7.8% on the day, respectively. Credit fared better with Crossover, Main and Fin Snr index closing around +3bp, +1bp and +1bp on the day although they were still around 18bp, 4bp and 4bp off their respective intraday tights.
I spoke to a few clients and internal people yesterday about the tests and there was a broad consensus that although banks are now probably safer entities with ample liquidity and a decent amount of capital, nothing has really changed vis-a-vis growth. There was some disagreement on whether the responsibility was now on banks to lend more or whether the test results actually hint that the banks aren’t holding back the recovery. The latter view tended to think that it was now for the authorities to provide a growth impetus. With politicians unable or unwilling to use fiscal policy then all the heavy lifting is down to a divided ECB. We think they’ll eventually expand their balance sheet considerably but there’s unlikely to be an imminent surge. So we’re perhaps in no man’s land for a while in Europe.
Yesterday marked the weekly ECB balance sheet numbers where we learnt they bought €1.704bn of Covered bonds in the first week of their new regime. The result was broadly in line with what was expected but it’s a long way to go to reach a Trillion Euros. We still think they’ll have to do Government QE to get there, a view shared by our Economists. They simply don’t think there’s enough private securities to be able to realistically buy enough bonds to meet their target. My team contributed to a section in this week’s Focus Europe where the conclusion is that buying corporate bonds is a decent possibility but that they will still eventually need to do full QE to get the desired volumes. The piece has plenty of stats around the potential size of ABS, Covered and Corporate bonds they could purchase.
Staying in Europe, the German IFO survey and sub components were all softer than expected. Business Climate (103.2 v 104.5 expected) fell for the sixth consecutive month which brings the series to a 22 month low. Current Assessment (108.4 v 110.0 expected) fell to the lowest since April 2013 whilst Expectations (98.3 v 99.2 expected) also fell to December 2012 lows. Money and credit aggregates data in Europe offered some encouraging news (M3 +2.5% yoy in September v +2.1% yoy August) but the market was very much fixated on conditions in Germany.
Over on the other side of the Atlantic, data was also on the softer side. Pending home sales (0.3% mom in September v 1.0% mom expected), Markit services PMI (57.3 v 57.8) and Dallas Fed Manufacturing (10.5 v 11.0) all fell short of market consensus. This offered little support to US equities (S&P 500 -0.15%) but in reality the market was perhaps due for a little breather after the biggest weekly gain (+4.1%) for the index since January 2013. All eyes now turn to the Fed’s decision tomorrow. Elsewhere in US credit the CDX IG and HY indices were little changed at around 65bp and $106.8 even though it was a fairly active day for the primary markets. The USD corporate bond market (including EM) absorbed US$5.4bn from five issuers across 9 different tranches with Financials being the main issuer of the day. The stability in Treasuries probably helped with the UST 10yr yield only a smidgen lower on the day at 2.26%. Away from core DM markets, price action in Brazil following the election results was largely as expected although they did recover from their intraday lows. After sharp fall in Brazilian stock ETF’s of as much as 7% in European trading, the Ibovespa closed down 2.8% after having fallen as much as 6.2% in early trading. The BRL fell by 1.9% to 2.521 against the USD. Our EM colleagues had expected the Real to trade closer to 2.60/USD and noted that the relatively tame reaction in the currency reduced the probability of another tightening cycle. They also expect the finance minister appointment to be crucial as to whether Rousseff will adjust current polices, however early indications from the Portuguese President Falcao is that this might not happen until 2015.
This morning we’ve already had the September Retail Sales print in Japan with the 2.7% mom reading well ahead of expectations of 0.9%. The data has failed to spark positive sentiment however with the Nikkei currently trading 0.8% lower following a Bloomberg article this morning mentioning that lower oil prices could mean the BoJ is forced to “tone down or abandon its outlook for inflation.” This comes before the Bank of Japan meeting on Friday where our Japanese colleagues mentioned yesterday that the focus will likely be on whether Kuroda says he is fully committed to keeping current monetary policy open ended and whether or not he outlines a target for the BoJ’s asset balance by the end of 2015. The rest of Asia is trading generally mixed with bourses in Hong Kong, China, Korea and Australia +0.6%, +1.1%, -0.3% and -0.2% respectively.
Before we wrap it up, there was some focus on Greece yesterday as the market absorbed the news that Syriza had edged further ahead in the latest weekend polls, extending their supposed lead to 8.5% from 6.5% in previous polls earlier in the month. As we’ve discussed before, although parliamentary elections are not due until June 2016, the presidential vote early next year could trigger snap elections sooner than expected if the current coalition government fails to secure the 180 votes needed to elect its presidential candidate. These polls will certainly be important to keep an eye on as we move through the remainder of the year. Greece’s key equity benchmark closed -3.3% yesterday although this is still about 10% off its recent lows.
Today will see the start of the two-day FOMC meeting although we won’t hear anything from the Fed until tomorrow’s post meeting statement. As a brief recap DB does expect QE to end this month but for the Fed to keep the ‘considerable time’ language for now. What’s would be interesting though is to see if the recent market volatility gets a mention. Fed aside, today will see the release of the Conference Board Consumer Confidence for October, the Richmond Fed Manufacturing Survey for October, Case-Shiller Home Prices for August and more importantly Durable Goods Orders for September. It is a highly volatile series but could play a key part in influencing the advance Q3 real GDP report on Thursday. Closer to home, Italy’s economic sentiment and business confidence are perhaps the notable ones to watch. We also have 49 S&P 500 companies and 16 Stoxx600 firms reporting today. Pfizer, Facebook (after market), UBS and Lloyds Banking Group are just some of them.
via Zero Hedge http://ift.tt/1wy0JIu Tyler Durden